Austria: Legal Developments In The Regulatory Practice

INTRODUCTION

Schoenherr is pleased to announce the release of its first
Regulatory Newsletter. We have created the newsletter to provide
stakeholders and clients from different industries with regular
updates on regulatory issues, such as new developments in the
fields of environmental and energy law, TMT, life sciences and
public procurement law.

Our contributions focus on CEE markets and aim to give investors
better insight into the European and CEE regulatory frameworks.
Up-to-date knowledge of regulatory law is crucial when assessing
business opportunities and risks related to specific projects. It
may also facilitate the identification of certain regulatory issues
within a due diligence process.

We pay special attention to environmental and energy law, as
these regulatory regimes have become increasingly important in CEE
countries over the past five years.

Schoenherr is recognised as the standard-bearer for regulatory
advice thanks to our expertise and longstanding experience. Our
Regulatory Practice Group is at the heart of many regulatory
projects, ensuring that we are always up-to-date on the latest
developments.

The Regulatory Practice Group has expertise in energy and
infrastructure projects as well as the licensing of large
industrial and commercial infrastructure. We regularly provide
legal advice in the fields of TMT, public procurement, PPPs and
state aid.

COUNTRY REPORTS

SERBIA: SERBIA POWERS UP: NEW ENERGY ACT ADOPTED

The new Energy Act (the Act) was adopted by the Serbian
Parliament on 29 July 2011. The aim of the Act is to harmonise
domestic energy regulations with those of the European Union. By
adopting the Act, Serbia will implement the Second EU energy
package, while the Third EU energy package will be implemented only
in part.

The Act envisages liberalisation of the Serbian energy market,
introduces market-based mechanisms for determining energy prices
and provides a new incentive structure for electricity generation
from renewable sources.

Market liberalisation

Liberalisation of the electricity market will begin on 1 January
2013 and end by 1 January 2015. As the last step in the
liberalisation process, households will be able to freely choose
their supplier after 1 January 2015.1

An open electricity market (and bilateral and balancing energy
markets) will be formed through the creation of an energy
exchange.

Vertically integrated undertakings will have to (legally)
unbundle the operation of the trans-mission and distribution grid
(a natural monopoly) from competition-oriented business areas, such
as supply and generation. Apart from that, cross subsidising
between entities undertaking regulated activities and entities
undertaking market activities within the same vertically or
horizontally integrated system has been banned.

In accordance with the EU legal framework, electricity
generation has been removed from the list of activities of public
interest. Consequently, concluding an agreement with the government
for energy production in Serbia is no longer required.

Energy permits and licences

Energy permits are issued for three years (two years under the
previous Energy Act). Energy licences will be valid for 10 years,
save for electricity production, heat energy and the combined
production of electric and heating energy, whose licences will be
valid for 30 years.

Renewables

The Act aims to increase investments in renewable energy
sources. The following incentives to generate electricity from
renewables are envisaged:

a possibility of obtaining the status of a privileged
producer;

privileged producers are entitled to the incentives
measures;

privileged producers will have priority with respect to
electricity grid feed-in.

The Act further provides the introduction of guarantees of
origin for electricity from renewables. These guarantees of origin
will allow producers to export green energy from Serbia to other
countries. Guarantees will be issued by the transmission system
operator (TSO) and will be valid for one year. Guarantees of origin
issued in other countries will be valid in Serbia based on the
principle of reciprocity.

The costs of electricity from renewables will ultimately be
borne by end-users paying a special fee for incentive measures,
which will be separately indicated on the electricity bill.

Privileged producer

The status of a privileged electricity producer can be obtained
if the following conditions are fulfilled:

an individual generating facility with an installed capacity of
up to 30 MW simultaneously generates electricity and heat energy,
provided that there is a high percentage of primary energy
use;

the facilities are connected to the grid;

the facilities have separate metering stations from those
measuring the electricity produced in other technological
processes;

an agreement on the sale of heat energy for cogeneration power
plants has been concluded;

the facility is dedicated as a wind or solar plant with an
installed capacity less than free capacity, i.e. that the request
to obtain privileged producer status relates to a part of the
installed power that is equal to or less than the free
capacity.2

The status of privileged producer is conferred by a decision of
the Ministry for Infrastructure and Energy, which must be issued
within 30 days from submission of the request and complete
documentation.

Another change envisaged for certain producers (using wind and
sun energy) is to obtain the status of provisional privileged
producer prior to obtaining the status of privileged producer.
Provisional privileged producer status can be obtained if:

a construction permit for the facility has been obtained;

the conditions listed above under points (i), (ii) and (vi) for
obtaining privileged producer status have been met; and

the applicant provides a deposit or bank guarantee amounting to
2% of the investment.

This provisional status may be held only for up to three years.
During this time, it is expected that the provisional privileged
producer will complete construction of the energy facility and
commence generating electricity (i.e. become a privileged
producer). If the status of privileged producer is not obtained
following this three-year period, the Act provides in certain cases
for the possibility of a one-year extension. Investors with the
status of provisional privileged producer can proceed to sign
preliminary contracts on feed-in tariffs, which are intended to
provide a sufficient basis for obtaining third party financing.
Thus, if the status of preliminary privileged producer is obtained,
the producer should be entitled to incentive
measures.3

Incentive measures for generation of electricity from
renewable sources

The incentive measures include an obligation by the public
supplier to purchase electricity from the privileged producer at a
price set by the government (specified for each type of renewable
energy source).

Incentive measures for generation of heat energy from
renewable sources

Generators of heat energy from renewable sources are, inter
alia, entitled to (i) the incentive purchase price, (ii) subsidies
and (iii) tax/customs waivers (holidays). The incentive measures
will be regulated in more detail by competent local
governments.

Incentive measures for generation of electricity from bio
fuels

The incentive measures for generation of electricity from bio
fuel are still to be determined by the government. The government
will also regulate in detail the mandatory stake of bio fuels in
the Serbian transportation system.

Undertakings transporting oil via pipeline must draft a
development plan determining the dynamics of reconstruction of
existing and construction of new transportation capacities for the
next five years.

Natural gas market

The Act introduces clearer provisions concerning (i)
non-discriminatory third party access to the gas grid, (ii)
management of the natural gas distribution system and (iii) storage
and management of natural gas.

The operator must allow users of the system non-discriminatory
access to the grid at regulated prices.

HUNGARY: THE NEW HUNGARIAN PUBLIC PROCUREMENT ACT

Act No. CVIII of 2011 on public procurements (the New Act)
was promulgated on 20 July 2011 to replace the former public
procurement act that had been in effect since 2003. The New Act
enters into force on 1 January 2012. Pursuant to the official
interpretation to the New Act, the adoption of the new regulation
became necessary due to the complex and non-transparent nature of
the former public procurement act. The legislative interpretation
also sets out that the New Act better serves the ultimate purposes
of public procurements: spending public funds on a best value for
money basis, transparency of such spendings and clarity of the
relevant competition. Beyond these purposes, the New Act aims to
improve the chances of small and medium enterprises (SMEs) to
successfully participate in the public procurement procedures and
to decrease the go-round debts.

SMEs

In order to achieve the goal of SMEs obtaining more assignments
from public procurements, purchasers may choose to give the right
of participation in the procurement procedure only to enterprises
whose annual net revenue does not exceed HUF 100 million in the
case of a purchase of goods and services, or HUF 1 billion in the
case of construction works. This rule may only be applied for
construction works and concessions if the purchase does not exceed
HUF 500 million. The government may freely prescribe the compulsory
application of this rule for state-owned organisations and
budgetary agencies governed or supervised by the government.

SMEs are also favoured by another new rule. If the estimated
purchase price of goods and services does not reach HUF 25 million,
or the estimated value of the construction project does not exceed
HUF 150 million, the purchaser may not need to announce an
invitation for tender but may instead ask at least three possible
SME bidders to make an offer. In such a case, the Public
Procurement Arbitration Board, acting as a general supervisory
body, need not even be notified.

In-house procurements

The rules regarding in-house procurements (procurements between
the state or local municipalities and their enterprises) have been
simplified. There is no need to conduct public procurement
procedures for contracts to be concluded between the state or local
municipalities and their own enterprises if at least 80 per cent of
the revenue of such enterprises otherwise stems from the owner.
Such contracts must be reconsidered only every five years. In
practice this may also mean that a state-owned company can avoid
the public procurement procedure by giving an assignment or order
to its own subsidiary with the procurement.

Grounds for exclusion

Under the new regulation, offshore companies or companies in
which a participation of an offshore entity exceeds 25 per cent
cannot be bidders in public procurement procedures.

Bidders with pending payment obligations to subcontractors
related to former public procurement procedures are also
disqualified and prohibited from participating. But this rule only
applies to contracts concluded after 15 September 2010 in relation
to former public procurement procedures. The fact that the debt has
been due for more than 15 days must be verified by an enforceable
administrative or court decision.

Further grounds for exclusions include: unpaid taxes, customs
duties or social security contributions; labour fines; supplying
false information in public procurement procedures; if the bidder
is under any sort of liquidation procedure; if the bidder has been
found guilty of a crime by a final court verdict in connection with
its economic or professional conduct, until exonerated from the
detrimental consequences of having a criminal record; or if the
bidder has been excluded for any period from participating in
public procurement procedures.

Exemptions

Under the New Act, the scope of procurements exempted from the
public procurement procedure has been widened. For instance, there
is no need for a public procurement procedure in cases of
prevention of catastrophes. Nor is the provision of legal services
subject to a public procurement procedure, even if the value
exceeds the EU thresholds for public procurement.

National procedure rules

Procurements below an estimated value of HUF 21 million in the
case of the purchase of goods and services, and HUF 263 million in
the case of construction works, representing the EU thresholds, may
be conducted according to the so-called national procedure rules.
In the framework of the national procedure rules, the purchasers
are entitled to create and apply their own procedural rules. This
may lead to legal uncertainties.

Risks and uncertainties

The New Act is considerably shorter than the former legislation.
It is claimed that the new legislation is more transparent, simple
and understandable. But several material issues are not regulated
in the New Act at all, meaning it is more a framework act than a
comprehensive regulation of the public procurement procedure.
Detailed rules are promised and anticipated to be laid down in
government decrees at later stages.

According to professional organisations, even if the New Act has
introduced some favourable changes, it may result in greater risks
of corruption, as well as legal and market uncertainties.

When acquiring or restructuring a running business, one
issue that must be considered is the transferability of
environmental permits. Addressing this issue in advance will help
to avoid ending up with a business that cannot be operated upon
completion of the purchase or restructuring.

Although transferability of environmental permits is usually
considered an issue in asset deals, it can also be a problem in
share deals. This might be the case if the target owns a plant and
the plant is operated by a third party that belongs to the target
group and that holds the environmental permit. If the third party
stops operating the plant after completion of the acquisition,
transfer of the permit should be considered.

Polish environmental protection law

The Polish environmental protection law links the provisions
relating to permits to the concept of installations, i.e.,
stationary technical equipment or buildings whose operation can
cause emissions. According to the Polish environmental law,
operation of an installation that causes certain emissions is
allowed only after the relevant environmental permit has been
obtained.

An entity interested in obtaining the legal title to an
installation may apply for the transfer of existing permits from
the current operator. However, the transfer is not automatic and is
possible only when the purchaser warrants that it will duly perform
the obligations resulting from such permits. It is also possible
that the relevant authority will request a security for claims
relating to a possible degradation of the environment. Once consent
to transfer the permit is obtained, the consent is valid for one
year. If legal title to the installation is acquired within that
period, the permit becomes legally effective after the
acquisition.

Besides the above transfer mechanism, permits transfer
automatically in case of restructurings, such as mergers and
spin-offs. In case of a spin-off, the company that takes over the
installations takes over the relevant permit.

Potential difficulties

Although the above provisions may look straightforward, there
are situations in which transferring a permit is difficult or
impossible; for example, if only part of an enterprise is
transferred on the basis of a sale of assets or a spin-off, and if
the seller has an integrated environmental permit that covers all
of its installations (i.e. including both the retained and the
sold/spun-off installations). Since it is not possible to divide a
permit between companies, it would not be possible to transfer only
part of the permit.

This means that for the sold or spun-off installations, new
permits must be obtained and the ones in force for the remaining
installations must be modified. Since obtaining a new permit is
time consuming (approximately one month to prepare the technical
documentation and one to two months for the authority to grant the
permit), it is essential that the parties consider the above period
when structuring a transaction, especially when the permit is to be
obtained between signing and completion. Also, it is important to
keep in mind that the entity planning to take over the installation
must apply for the permit; no other entity may apply on its
behalf.

The above must be taken into account, for example, in case of a
transfer of rights and obligations relating to a business purchase
agreement between signing and closing to a newly created SPV, as
the application for the permit may be filed only after the creation
of the SPV.

Footnotes

1. The Act also envisages that the Energy Agency, as an
independent regulator elected by the parliament, will deter-mine
energy prices starting from 1 January 2012 (as opposed to such task
being assigned to the government in the previous Energy
Act).

2. Free capacity in this case means the difference
between the maximum capacity for which the incentive measures apply
and the amount of installed capacities for the same type of
generation facilities of the producers that have ob-tained the
status of provisional privileged producer or privileged producer in
Serbia.

3. The previous Energy Act failed to clearly regulate
this area (i.e. conditions to be fulfilled in order to avail of
incentive measures); there was thus a high degree of risk in making
substantial investments prior to receiving approval to avail of the
incentive measures (e.g. a preliminary PPA).

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